AMP » Topics » 10. Commitments and Contingencies

These excerpts taken from the AMP 10-K filed Mar 2, 2009.

22. Commitments and Contingencies

The Company is committed to pay aggregate minimum rentals under noncancelable operating leases for office facilities and equipment in future years as follows:

 
  (in millions)  

2009

  $ 113  

2010

    91  

2011

    83  

2012

    71  

2013

    62  

Thereafter

    302  
       
 

Total

  $ 722  
       

For the years ended December 31, 2008, 2007 and 2006, operating lease expense was $92 million, $93 million and $88 million, respectively.

The following table presents the Company's funding commitments:

 
  December 31,  
 
  2008   2007  
 
  (in millions)
 

Commercial mortgage loan commitments

  $ 44   $ 101  

Consumer mortgage loan commitments

    298     301  

Consumer lines of credit

    392     91  
           

Total funding commitments

  $ 734   $ 493  
           

The Company's life and annuity products all have minimum interest rate guarantees in their fixed accounts. As of December 31, 2008, these guarantees range up to 5%. To the extent the yield on the Company's invested asset portfolio declines below its target spread plus the minimum guarantee, the Company's profitability would be negatively affected.

The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which it operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions and heightened volatility in the financial markets, such as those which have been experienced for over the past year, may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the financial services industry generally. Relevant to market conditions since the latter part of 2007, a large client claimed breach of certain contractual investment guidelines. Concurrent with the Company continuing to evaluate the client's claims, the parties are discussing the possibility of mediation or arbitration. No date or format has been set for any such proceeding, and the outcome of this matter remains uncertain at this time.

As with other financial services firms, the level of regulatory activity and inquiry concerning the Company's businesses remains elevated. From time to time, the Company receives requests for information from, and/or has been subject to examination by, the SEC, FINRA, OTS, state insurance regulators, state attorneys general and various other governmental and quasi-governmental authorities concerning the Company's business activities and practices, and the practices of the Company's financial advisors. Pending matters about which the Company has recently received information requests include: sales and product or service features of, or disclosures pertaining to, the Company's mutual funds, annuities, insurance products, brokerage services, financial plans and other advice offerings; supervision of the Company's financial advisors; supervisory practices in connection with financial advisors' outside business activities; sales practices and supervision associated with the sale of fixed and variable annuities; the delivery of financial plans; the suitability of particular trading strategies and data security. The number of reviews and investigations has increased in recent years with regard to many firms in the financial services industry, including Ameriprise Financial. The Company has cooperated and will continue to cooperate with the applicable regulators regarding their inquiries.

These legal and regulatory proceedings and disputes are subject to uncertainties and, as such, the Company is unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could

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result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the Company's consolidated financial condition or results of operations.

Certain legal and regulatory proceedings are described below.

In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona, and was later transferred to the United States District Court for the District of Minnesota. The plaintiffs alleged that they were investors in several of the Company's mutual funds and they purported to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs alleged that fees allegedly paid to the defendants by the funds for investment advisory and administrative services were excessive. On July 6, 2007, the Court granted the Company's motion for summary judgment, dismissing all claims with prejudice. Plaintiffs appealed the Court's decision, and the appellate argument took place on April 17, 2008. The U.S. Court of Appeals for the Eighth Circuit is now considering the appeal.

In September 2008, the Company commenced a lawsuit captioned Ameriprise Financial Services Inc. and Securities America Inc. v. The Reserve Fund et al. in the District Court for the District of Minnesota. The suit alleges that the management of the Reserve Fund made selective disclosures to certain institutional investors in violation of the federal securities laws and in breach of their fiduciary duty in connection with the Reserve Primary Fund's lowering its net asset value ("NAV") to $.97 on September 16, 2008. The Company and its affiliates had invested $228 million of its own assets and $3.4 billion of client assets in the Reserve Primary Fund. To date, approximately $0.85 per dollar NAV has been paid to investors by the Reserve Primary Fund.

For several years, the Company has been cooperating with the SEC in connection with an inquiry into the Company's sales of, and revenue sharing relating to, other companies' real estate investment trust ("REIT") shares. SEC staff has recently notified the Company that it is considering recommending that the SEC bring a civil action against the Company relating to these issues, and is providing the Company with an opportunity to make a submission to the SEC as to why such an action should not be brought.

3. Commitments and Contingencies

The Parent Company is the guarantor for an operating lease of IDS Property Casualty Insurance Company.

All consolidated legal, regulatory and arbitration proceedings, including class actions of Ameriprise Financial, Inc. and its consolidated subsidiaries are potential or current obligations of the Parent Company.

The Parent Company and ACC entered into a Capital Support Agreement on March 2, 2009, pursuant to which the Parent Company agrees to commit such capital to ACC as is necessary to satisfy applicable minimum capital requirements, up to a maximum commitment of $115 million.

This excerpt taken from the AMP 10-K filed Feb 29, 2008.

3.           Commitments and Contingencies

      The Parent Company is the guarantor for an operating lease of IDS Property Casualty Insurance Company.

      All consolidated legal, regulatory and arbitration proceedings, including class actions of Ameriprise Financial, Inc. and its consolidated subsidiaries are potential or current obligations of the Parent Company.

F-7


This excerpt taken from the AMP 10-K filed Feb 27, 2007.

3. Commitments and Contingencies

The Parent Company is the guarantor for an operating lease of IDS Property Casualty Insurance Company.

All consolidated legal, regulatory and arbitration proceedings, including class actions of Ameriprise Financial, Inc. and its consolidated subsidiaries are potential or current obligations of the Parent Company.

F-5




 

These excerpts taken from the AMP 10-K filed Mar 8, 2006.

Note 7  Commitments and Contingencies

 

The Parent Company is the guarantor for an operating lease of IDS Property Casualty Insurance Company.

 

The Parent Company is involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions and investigations, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Parent Company as well as proceedings generally applicable to business practices in the industries in which the Parent Company operates. The Parent Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships.

 

These proceedings are subject to uncertainties and, as such, the Parent Company is unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the Parent Company’s results of operations, financial condition or credit ratings.

 

In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to a motion to dismiss the complaint, the Court dismissed one of plaintiffs’ four claims and granted plaintiffs limited discovery.

 

In October 2005, the Parent Company reached a comprehensive settlement regarding the consolidated securities class action lawsuit filed against the Parent Company, its former parent and affiliates in October 2004 called “In re American Express Financial Advisors Securities Litigation.” The settlement, under which the Parent Company denies any liability, includes a one-time payment of $100 million to the class members. The class members include individuals who purchased mutual funds in certain revenue sharing programs; purchased mutual funds sold under the American Express® or AXP® brand; or purchased for a fee financial plans or advice between March 10, 1999 and through the date on which a formal stipulation of settlement is signed. The settlement will be submitted to the Court for approval. Two lawsuits making similar allegations (based solely on state causes of actions) are pending in the United States District Court for the Southern District of New York: “Beer v. American Express Company and American Express Financial Advisors” and “You v. American Express Company and American Express Financial Advisors.” Plaintiffs have moved to remand the cases to state court. The Court’s decision on the remand motion is pending.

 

On December 1, 2005, the Parent Company announced settlement of an SEC enforcement matter relating to periods before the Distribution. The matter involved allegations that the Parent Company permitted improper market timing in the Parent Company’s own mutual funds (including market timing by a limited number of the Parent Company’s employees through their own personal 401(k) retirement accounts) as well as in certain annuity products, notwithstanding prohibitions against this practice in the product disclosures. Under the terms of the settlement the Parent Company agreed to a censure and to pay $15 million in the form of civil penalties and disgorgement. The Parent Company is required to develop a plan of distribution with the assistance of an independent distribution consultant. The plan will address how funds will be distributed to benefit investors in the Company’s mutual funds for market-timing activity that took place between January 1, 2002 and September 30, 2003. The distribution plan will be subject to final approval by the SEC. As part of the settlement, the Parent Company also agreed to certain undertakings regarding disclosure, compliance and training.

 

 

F-7



 

18. Commitments and Contingencies

 

The Company is committed to pay aggregate minimum rentals under noncancelable operating leases for office facilities and equipment in future years as follows (millions): 2006, $80; 2007, $71; 2008, $58; 2009, $50; 2010, $46 and an aggregate of $341 thereafter. The operating lease expense was approximately $95 million, approximately $90 million and approximately $82 million for the years ended December 31, 2005, 2004 and 2003, respectively.

 

Mortgage loan funding commitments were $116 million and $95 million at December 31, 2005 and 2004, respectively.

 

The Company’s life and annuity products all have minimum interest rate guarantees in their fixed accounts. As of December 31, 2005, these guarantees range from 1.5% to 5%. To the extent the yield on the Company’s invested asset portfolio declines below its target spread plus the minimum guarantee, the Company’s profitability would be negatively affected.

 

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The Company, through its Threadneedle subsidiary, has approximately $2 million in commitments to provide additional capital in the form of equity interests on non-interest bearing subordinated loans to two of Threadneedle’s equity investments. The addtional capital can be called at the discretion of the investees.

 

The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which the Company operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships.

 

These proceedings are subject to uncertainties and, as such, the Company is unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the Company’s consolidated results of operations, financial condition or credit ratings.

 

In addition, from time to time the Company receives requests for information from, and has been subject to examination or investigation by, the SEC, NASD and various other regulatory authorities concerning its business activities and practices, including: sales and product or service features of, or disclosures pertaining to, financial plans, its mutual funds, annuities, insurance products and brokerage services; non–cash compensation paid to its financial advisors; supervision of its financial advisors; operational and data privacy issues; and sales of, or brokerage or revenue sharing practices relating to, other companies’ REIT shares, mutual fund shares or other investment products. The number of reviews and investigations has increased in recent years with regard to many firms in the financial services industry, including the Company. The Company has cooperated and will continue to cooperate with the applicable regulators regarding their inquiries.

 

In November 2002, a suit, now captioned Haritos et al. v. American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The suit was filed by plaintiffs who purport to represent a class of all persons that have purchased financial plans from the Company’s advisors from November 1997 through July 2004. Plaintiffs allege that the sale of the plans violates the Investment Advisers Act of 1940. The suit seeks an unspecified amount of damages, rescission of the investment advisor plans and restitution of monies paid for such plans. On January 3, 2006, the Court granted the parties joint stipulation to stay the action pending the approval of the proposed settlement in the putative class action, “In re American Express Financial Advisors Securities Litigation,” which is described below.

 

In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express mutual funds and they purport to bring the action derivatively on behalf of those funds under the 1940 Act. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to the Company’s motion to dismiss the complaint, the Court dismissed one of plaintiffs’ four claims and granted plaintiffs limited discovery.

 

In October 2005, the Company reached a comprehensive settlement regarding the consolidated securities class action lawsuit filed against the Company, its former parent and affiliates in October 2004 called “In re American Express Financial Advisors Securities Litigation.” The settlement, under which the Company denies any liability, includes a one-time payment of $100 million to the class members. The class members include individuals who purchased mutual funds in the Company’s Preferred Provider Program, Select Group Program, or any similar revenue sharing program, purchased mutual funds sold under the American Express® or AXP® brand; or purchased for a fee financial plans or advice from the Company between March 10, 1999 and through the date on which a formal stipulation of settlement is signed. The settlement will be submitted to the Court for approval. Two lawsuits making similar allegations (based solely on state causes of actions) are pending in the United States District Court for the Southern District of New York: “Beer v. American Express Company and American Express Financial Advisors” and “You v. American Express Company and American Express Financial Advisors.” Plaintiffs have moved to remand the cases to state court. The Court’s decision on the remand motion is pending.

 

As with other financial services firms, the level of regulatory activity and inquiry concerning the Company’s businesses remains elevated. The Company has continued to receive requests for information from, and has been subject to examination by, the SEC, NASD and various other regulatory agencies concerning its business activities and practices, including: sales and product or service features of, or disclosures pertaining to, financial plans, its mutual funds, annuities, insurance products and brokerage services; non–cash compensation paid to its financial advisors; supervision of its financial advisors; operational issues relating to the RiverSource mutual funds; and sales of, or brokerage or revenue sharing practices relating to, other companies’ REIT shares, mutual fund shares or other investment products.

 

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Other open matters relate, among other things, to the portability (or network transferability) of the Company’s RiverSource mutual funds, the suitability of product recommendations made to retail financial planning clients, licensing matters related to sales by its financial advisors to out-of-state clients and net capital and reserve calculations. The Company has also received a number of regulatory inquiries in connection with its notification of the theft of a laptop computer containing certain client and financial advisor information. These open matters relate to the activities of various Ameriprise legal entities, including Ameriprise Financial Services, Inc. (formerly known as “American Express Financial Advisors Inc.” or AEFA), Ameriprise Enterprise Investment Services, Inc. (its clearing-broker subsidiary) and SAI. The Company has cooperated and will continue to cooperate with the regulators regarding their inquiries.

 

In 2005 the Company resolved by settlement a number of pending matters that pre-dated the Distribution. The majority of these settlements involved AEFA.

 

On December 1, 2005, the Company announced settlement of two additional SEC enforcement matters relating to periods before the Distribution. The first matter involved allegations that AEFA failed to adequately disclose the details of various revenue sharing programs the Company maintained in connection with sales of certain non-proprietary mutual funds and 529 college savings plans. The SEC announcement also covers a second enforcement action alleging that AEFC permitted improper market timing in the Company’s own mutual funds (including market timing by a limited number of the Company’s employees through their own personal 401(k) retirement accounts) as well as in certain of the Company’s annuity products, notwithstanding prohibitions against this practice in the product disclosures. Under the terms of the settlements the Company agreed to a censure and to pay an aggregate of $45 million ($30 million allocated to revenue sharing and $15 million to market timing) in the form of civil penalties and disgorgement. The Company is required to develop plans of distribution with the assistance of an independent distribution consultant. Regarding revenue sharing, the plan will address how such funds will be distributed to benefit customers that purchased the particular mutual funds between January 1, 2001 through August 31, 2004. A second plan will address how funds will be distributed to benefit investors in the Company’s mutual funds for market-timing activity that took place between January 1, 2002 and September 30, 2003. The distribution plans will be subject to final approval by the SEC. As part of the settlements, the Company also agreed to certain undertakings regarding disclosure, compliance and training.

 

Additionally on December 1, 2005, the Company announced that it had reached agreement with the NASD to settle alleged violations of NASD conduct rules prohibiting directed brokerage in connection with its revenue sharing programs with certain preferred non-proprietary mutual funds. Under the settlement the Company received a censure and paid a fine of $12.3 million.

 

During the course of 2005 the Company reached settlements with four states in regulatory matters regarding supervisory practices, financial advisor misappropriations of customer funds, 529 plan and Class B mutual fund sales practices, incentives for AEFA’s branded financial advisors to sell both its proprietary mutual funds and other companies’ mutual funds, the sale of proprietary mutual fund products to financial planning clients, and the matters raised in the SEC and NASD enforcement actions described above. As part of these state settlements the Company paid approximately $13.4 million total in fines and penalties and also agreed, in certain instances, to provide restitution and to independent consultant review of certain of its practices and policies, including certain of its sales and advice supervisory practices. One such review was delivered in January 2006, and the Company has commenced implementation of the recommended enhancements. The Company will continue to meet its obligations under these settlements throughout 2006. There are pending investigations and demands made by regulators of other states regarding matters substantially similar to those which have settled, as well as the open matters described above, and there can be no assurance that any one or more of these investigations, demands and matters will settle or otherwise conclude without a material adverse effect on the Company’s consolidated results of operations, financial condition or credit ratings.

 

The IRS routinely examines the Company’s federal income tax returns and recently completed its audit of the Company for the 1993 through 1996 tax years. The IRS is currently conducting an audit of the Company for the 1997 through 2002 tax years. Management does not believe there will be a material adverse effect on the Company’s consolidated results of operations and financial condition as a result of these audits.

 

This excerpt taken from the AMP 10-Q filed Nov 14, 2005.

10.  Commitments and Contingencies

 

The SEC, the National Association of Securities Dealers (NASD) and several state attorneys general have brought proceedings challenging several mutual fund industry practices, including late trading, market timing, and disclosure of revenue sharing arrangements, which are paid by fund advisors or companies to brokerage firms who agree to sell those funds.  The Company has received requests for information and has been contacted by regulatory authorities concerning its practices and is cooperating fully with these inquiries.

 

On March 21, 2005, the Company’s broker-dealer subsidiary entered into an agreement with the NASD to settle alleged violations of NASD rules arising from the sale to customers of B mutual fund shares between January 1, 2002 and July 31, 2003.  The Company’s agreement with the NASD is one of several that the NASD entered into with certain brokerage firms regarding allegedly inappropriate sales of B shares.  Under the terms of the settlement, the Company consented to the payment of a fine to the NASD in the amount of $13 million.  The Company established reserves in prior quarters to cover the payment of the fine.  The Company also agreed to offer certain customers who purchased B shares in any fund family from January 1, 2002 through the date of the settlement and continued to hold such shares the option of converting their B shares into a number of A shares equal to (x) the number of A shares that the customer could have purchased on the date(s) that they purchased their B shares plus (y) any shares reflecting reinvestment of dividends.  The Company agreed to pay cash to certain customers who have sold a portion or all of their B shares in order to put them in substantially the same financial position (based on actual fund performance and redemption value) in which such customers would have been had the customers purchased A shares instead of B shares.

 

In July 2005, the Company settled an action brought by the New Hampshire Bureau of Securities Regulation (the NHBSR) alleging that the Company failed to disclose revenue sharing and directed brokerage payments received from non-proprietary mutual funds, and failed to disclose incentives for advisors to sell proprietary products and other alleged conflicts of interest.  The Company has completed payment of $5 million in fines and penalties to the NHBSR and the reimbursement of the costs incurred by the NHBSR for its investigation.  The Company is cooperating with the NHBSR to make payment of up to $2 million in restitution to New Hampshire customers who meet specified criteria.

 

The Company has received requests for information from the SEC, NASD and various state regulatory authorities on a variety of activities and practices, including sales of other companies’ REIT shares, sales of its mutual funds and non-cash compensation paid to its financial advisors and is cooperating fully with the applicable regulators regarding their requests for information.

 

The Company has reached a comprehensive settlement regarding the consolidated securities class action lawsuit filed against the Company, its former parent and affiliates in October 2004 called, “In re American Express Financial Advisors Securities Litigation.”  The settlement, under which the Company denies any liability, includes a one-time payment of $100 million to the class members.  The settlement is subject to court approval.  The class members include individuals who purchased mutual funds in the Company’s Preferred Provider Program, Select Group Program, or any similar revenue sharing program; purchased mutual funds sold under the American Express ® or AXP ® brand; or purchased for a fee financial plans or advice from the Company between March 10, 1999 and through the date on which a formal stipulation of settlement is signed.  The Company’s litigation reserve is sufficient to cover the contingent liability for the settlement.  The reserve for this litigation was increased by $70 million pretax, $46 million after-tax, at September 30, 2005 from the reserve at June 30, 2005.  The impact of this reserve increase is reflected as an expense on the Company’s statement of operations for the quarter ended September 30, 2005.

 

15



 

In November 2002, a suit, now captioned Haritos et al. v. American Express Financial Advisors, Inc., was filed in the United States District Court for the District of Arizona. The suit was filed by plaintiffs who purport to represent a class of all persons that have purchased financial plans from the Company’s advisors from November 1997 through July 2004. Plaintiffs allege that the sale of the plans violates the Investment Advisers Act of 1940, or the IAA. The suit seeks an unspecified amount of damages, rescission of the investment advisor plans and restitution of monies paid for such plans.  In February 2005, the Court denied the Company’s motion to dismiss the Second Amended Complaint.  The Company has filed a motion to stay the Haritos proceedings pending approval of the settlement in In re American Express Financial Advisors Securities Litigation.  Plaintiffs have opposed the motion.

 

In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors, Inc. was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several AXP mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to our motion to dismiss the complaint, the Court dismissed one of plaintiffs’ four claims and granted plaintiffs limited discovery.

 

From time to time, the Company is involved in legal, regulatory and arbitration proceedings, including class actions concerning matters arising in connection with the conduct of its business activities.  These proceedings are subject to uncertainties and, as such, the Company is unable to estimate the possible loss or range of loss that may result.  An adverse outcome in one or more of these proceedings could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.

 

The IRS routinely examines the Company’s federal income tax returns and recently completed its audit of the Company for the 1993 through 1996 tax years. The IRS is currently conducting an audit of the Company for the 1997 through 2002 tax years.  Management does not believe there will be a material adverse effect on the Company’s consolidated financial position and results of operations as a result of these audits.

 

This excerpt taken from the AMP 8-K filed Sep 16, 2005.

Note 4    Commitments and Contingencies

        The Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD) and several state attorneys general have brought proceedings challenging several mutual fund industry practices, including late trading, market timing, disclosure of revenue sharing arrangements, which are paid by fund advisors or companies to brokerage firms who agree to sell those funds, and inappropriate sales of B (no front end load) shares. The Company has received requests for information and has been contacted by regulatory authorities concerning its practices and is cooperating fully with these inquiries.

        On March 21, 2005, the Company's broker-dealer subsidiary entered into an agreement with the NASD to settle alleged violations of NASD rules arising from the sale to customers of B mutual fund shares between January 1, 2002 and July 31, 2003. The Company's agreement with the NASD is one of several that the NASD entered into with certain brokerage firms regarding allegedly inappropriate sales of B shares. Under the terms of the settlement, the Company consented to the payment of a fine to the NASD in the amount of $13 million. The Company established reserves in prior quarters to cover the payment of the fine. The Company also agreed to offer certain customers who purchased B shares in any fund family from January 1, 2002 through the date of the settlement and continued to hold such shares the option of converting their B shares into a number of A shares equal to (x) the number of A shares that the customer could have purchased on the date(s) that they purchased their B shares plus (y) any shares reflecting reinvestment of dividends. The Company agreed to pay cash to certain customers who have sold a portion or all of their B shares in order to put them in substantially the same financial position (based on actual fund performance and redemption value) in which such customers would have been had the customers purchased A shares instead of B shares.

F-62


AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

        On February 17, 2005, the New Hampshire Bureau of Securities Regulation (the NHBSR) filed a petition against the Company. The petition alleges that the Company violated New Hampshire and federal securities laws by failing to disclose revenue sharing and directed brokerage payments received from non-proprietary mutual funds for agreeing to make their products available through the Company's national distribution network. The petition also alleges that the Company failed to disclose incentives for advisors to sell proprietary products and other alleged conflicts of interest. The petition seeks, among other things, an order to show cause why the Company's broker-dealer license should not be denied, suspended or revoked, a proposed fine and restitution of financial planning fees during the relevant period (principally 1999 to 2003) in the amount of $17.5 million and disgorgement of revenue sharing and directed brokerage payments and other relief. The Company has removed the case to the United States District Court for the District of New Hampshire and intends to fully cooperate in this matter.

        The Company has received requests for information from the SEC, NASD and various state regulatory authorities on a variety of activities and practices, including sales of other companies' REIT shares, sales of its mutual funds and non-cash compensation paid to its financial advisors and is cooperating fully with the applicable regulators regarding their requests for information.

        From time to time, the Company is involved in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its business activities. The Company believes it has meritorious defenses to each of these actions and intends to defend them vigorously. An adverse outcome in one or more of these proceedings could have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity.

        The IRS routinely examines the Company's federal income tax returns and is currently conducting an audit of the Company for the 1993 through 1996 tax years and in February of 2005 began the exam of the 1997 through 2002 tax years. Management does not believe there will be a material adverse effect on the Company's consolidated financial position as a result of these audits.

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